It’s not unusual for workers to get a late start on retirement savings. For a variety of reasons, many don’t seriously begin feathering their nest egg until they’re 50 or older.
“Saving for retirement after 50 can seem like a mountain to climb,” said Zaneilia Harris, a certified financial planner and president at Harris & Harris Wealth Management in Upper Marlboro, Maryland, in an email.
“I wish I could say it will be easy, but unfortunately it is not. Is it insurmountable? Of course not,” Harris said.
However, she added, getting a late start on retirement savings and hoping for a successful outcome requires a firm commitment, focus and a candid assessment of needs versus wants.
To successfully jump-start your retirement savings later in life, follow these guidelines:
Become a Super Saver
Stashing away money while your peers are already retiring is not fun, but it is necessary.
You can use milestones like yearly or quarterly tax filing deadlines to check that your retirement savings align with your goals.
April is typically the month when people realize they are paying too much in taxes and want to learn tax reduction strategies, said Alyssa Zagrobski, director of retirement plan services at Denver-based Shelton Capital Management, in an email. “If you work for an employer who offers a retirement account, are you maxing it out?”
She added that entrepreneurs or self-employed people can maximize tax savings through an IRA or even an individual 401(k).
“All of these strategies will help you become a super saver,” she said.
Pay off Your Mortgage
Paying off your mortgage before retirement reduces financial stress and allows more of your income to go toward your nest egg. After retirement, your money can be used for general living expenses and even some fun rather than keeping a roof over your head.
“The best way to pay down your mortgage is to make an extra payment toward principle every month and cut down the time you are making interest payments,” said Taylor Kovar, CEO of Kovar Wealth Management in Lufkin, Texas, in an email.
“This means you are paying less interest to the bank and speeding up the time to payoff,” Kovar said.
He suggested shaving years off your mortgage by making the extra payments principle only. This move can potentially save tens of thousands of dollars.
“Remember, this is a voluntary exercise, so you have the flexibility to make the extra payments as it works for you,” he said.
Pay off Other Debts
In addition to paying off the mortgage, eliminating other debt is crucial the closer workers are to retirement.
Debt may be even more of a priority for those who got a late start saving. Without debt obligations, workers can contribute more to retirement savings by eliminating interest payments and monthly payments to creditors.
“Late-life debt can be a great burden,” Kovar said. “Consider taking on side hustles or temporary gigs to accelerate debt repayment. Prioritize high-interest debts first and gradually work towards becoming debt-free. Every debt paid off brings you closer to financial freedom.”
Retirement savers over 50 should address credit card debt, in particular, said Gerald Goldberg, CEO of GYL Financial Synergies in West Hartford, Connecticut, in an email.
“There is no excuse for maintaining balances on credit cards,” he said. “The interest rate incurred is typically high and the interest paid is not deductible.”
Credit card balances, he said, should be paid off in full every month to a zero balance.
“If you can’t do that, you are spending above your means and it’s time to look in the mirror and right-size your lifestyle,” Goldberg said.
Downsize Your Life
If you’re an empty nester, you may not need as large a house as you did when raising your family. Downsizing your life may also mean decluttering your possessions, some of which can be sold to raise cash.
“Downsizing can also be a great way to reduce expenses and increase savings,” said Michael Collins, founder and CEO of WinCap Financial in Winchester, Massachusetts, in an email.
“This may mean moving to a smaller home, selling unnecessary belongings or even relocating to a more affordable area,” he said. “I have seen many clients downsize successfully and it has allowed them to retire comfortably and enjoy their golden years.”
Maximize Tax Breaks
Tax strategy is an important component of retirement planning that shouldn’t be overlooked. There are several ways pre-retirees getting a late start can take advantage of benefits the tax code allows.
For example, don’t overlook catch-up contributions to 401(k) and IRAs available to investors age 50 and older. This will add to your retirement piggy bank while also reducing your tax bill.
In addition, many pre-retirees don’t think about a health savings account.
“If you have maximized your 401(k) retirement account contributions, have you thought about contributing to an HSA account? If your employer offers a high deductible health insurance plan, you may be eligible to contribute to a health savings plan,” Zagrobski said.
In 2024, the contribution limits for an HSA are $4,150 for an individual and $8,300 for a family. These contributions reduce your taxable income.
“This is a great strategy for potential tax-free income in retirement to help cover medical bills,” she said.
Pre-retirees should speak with a financial planner or accountant to develop other strategies for lowering their tax bill.
Maintain Your Health Insurance
When people panic over finances, they sometimes try to cut down on expenses by dropping or reducing their health insurance coverage.
That’s a mistake at any age, but especially for older workers.
“One unexpected medical expense can wipe out your entire retirement savings,” Collins said. “If you retire before age 65, make sure you have a plan in place to cover your health care costs until you are eligible for Medicare. Even after age 65, it’s important to review your Medicare options to ensure you have the best coverage for your needs.”
Have a Social Security Strategy
The best strategies for maximizing Social Security benefits will depend on your age, marital status and financial needs. For example, if you delay claiming benefits until full retirement age or even later, you will get higher monthly payments.
Additionally, coordinating spousal benefits can optimize total household income. If you’re divorced or widowed, you may have options for claiming the Social Security benefit from your previous spouse. It’s worth checking with a financial planner who can develop a strategy for you rather than trying to navigate the maze of Social Security rules yourself.
Insulate Your Career
Technology is changing at a rapid pace, and older workers may feel they can’t keep up or don’t even want to.
That’s a mistake in an era when employers won’t hesitate to downsize. Finding yourself on the chopping block late in your career could be devastating to your retirement plans.
“Stay relevant in the job market by continually updating skills and staying abreast of industry trends,” Kovar said. “Embrace lifelong learning and consider part-time or consulting opportunities if faced with job insecurity. Age should never be a barrier to career growth.”
Have a Timetable for Retirement
While you may feel ready to leave the rat race today, don’t make the mistake of jumping too soon or without a net. People often underestimate the amount of money they’ll need to retire comfortably, so it’s wise to consult a planner to create a realistic timetable.
There are other steps you can take to be sure your goals are reasonable.
For example, if you have target-date investments in your retirement account, it’s wise to check them periodically, Zagrobski said.
“Has your time horizon changed? Have you decided to work part-time in retirement? Will you pick up a consulting gig? Have you considered moving states? All these factors are important to think about when you are considering the timetable for your retirement,” she said.
If you wait until age 70 to collect Social Security, you, and potentially your spouse, will receive a higher benefit for the rest of your life. In addition, the extra years in the workforce mean fewer years you’ll be withdrawing from your retirement accounts.
The age to begin taking required minimum withdrawals from qualified retirement accounts has increased to 73. If you can generate income without making those withdrawals until you turn 73, that also extends the time your account can grow and reduces the time you’ll be taking money out.
